What Are Credit Cards Used For?

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A credit card is a method of electronic payment that a financial institution provides. It is mainly made using plastic, but some are made of metal. You’re able to complete purchasing transactions with it using money borrowed from a banking establishment until you reach the predetermined credit limit. You’re allowed to spend as much or as little as you like, typically within a 30 day period. This makes it a revolving line of credit instead of an installment loan where the total amount of funds is dispersed at the start. With a credit card, you can borrow more money every month, up to your credit limit, as long as you make your monthly payments on time.

How does a credit card work?

You simply insert your card into a card reader if you’re buying something from a physical retail outlet. There’s a security chip on the card that the card reader detects in order to process the payment. If you’re doing online shopping, then the retailer will ask for the following details:

  • Name and billing address
  • The card number
  • Expiration date
  • The three-digit security code on the back of the card

The merchant makes an inquiry from your card network about whether your card is still working and if you have enough credit to complete the purchase. This happens after you swipe your card to initiate the purchasing process. Your card network will then notify the merchant whether your transaction is approved or they’ve declined it. If it doesn’t work, you’ll have to contact your the card issuer. The declined transaction may be due to a lack of available credit, fraudulent activity, or even your card issuer may have rejected the transaction due to unusual activity on the account.

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How credit cards used?

They can be used to do several things. The best way to use them is only utilizing them when you really need to. It would be best to only charge amounts that you know you can afford to pay back without struggling. When you utilize your credit card that way, it will help you pay for expenses you encounter daily, earn rewards, build credit, among other great benefits. However, if you aren’t careful with how you use your credit card, you might end up in unsurmountable debt, or you can pay high-interest charges, among other consequences.

You can use your credit card to deal with your finances more efficiently and build a good credit history. It’s a better alternative to using cash or even a debit card. You can get a lot of advantages with your credit card, including fraud protection and purchasing protection. You can easily replace it if you lose one, unlike cash which will be gone for good. We’ll explore some of the best ways you can use your credit card to maximize the benefits of properly using one. The following are five ways in which you can use your credit card.

Use your credit card to earn rewards

Using a credit card is one of the easiest ways you can use to earn rewards. There are two main categories of reward cards which include cash-back cards and travel reward cards. For the cash-back rewards cards, you get some bonuses for being a credit card owner when you buy items using the card. They usually work based on percentages. You get a percentage of the amount you use for each transaction. For the travel reward cards, you earn miles or points for every dollar you spend. When you want to travel, you can redeem the rewards you’ve earned to get free hotel bookings or flights, among other rewards.

Nonetheless, according to some studies conducted, such as the ones done by the Journal of Experimental Psychology, it’s good to note that those who use cash to pay typically spend less than those who use cards to purchase items. Therefore, it’s advisable not to overspend just for the sake of earning rewards. Just use the amount you’d normally use to pay for things you need. Also, only spend money you can be comfortable paying back. It’s also good to be aware of the fact that you have to pay annual fees for a majority of reward cards. If you realize you won’t be capable of comfortably paying the annual fee amount, it may be better to consider other types of cards.

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Build your credit score using your credit card

You might improve your credit history due to having too many newer account accounts. Perhaps you’re utilizing too large a percentage of your available credit. A credit card may be of good use to help improve your scores and overall credit history. The two types of credit cards you can use are the secured and unsecured. You’ll be required to pay for a deposit if you apply for a secured card. The amount you pay for the deposit is the same as your available credit limit, but it’s refundable most of the time after a preset number of months with perfect payment history. It will act as collateral in the meanwhile.

When it comes to unsecured credit cards, you aren’t required to pay any collateral. You will be approved based on your creditworthiness. However, the unsecured credit card’s application requirements are very strict compared to the secured credit card. There are three main credit bureaus where the secured and unsecured cards’ payment history is reported. If you make all your payments on time and in full, it will help increase your credit limit after a few months. However, if you are late in making payments, then you won’t have very good credit.

A credit card offers you safety

A credit card reduces the chances of you suffering financial losses caused by fraud. If you use a debit card and a thief uses it to get money from your account, then there is a minimal chance you will be able to recover the loss. Your credit may end up being affected due to bounced checks or late payments due to a lack of funds. The bank takes time to investigate fraud matters; hence your money won’t be reversed back to your account quickly either.

On the other hand, when you use a credit card, and your money is stolen using fraud, you don’t lose money. You report the matter to your credit card company, and they won’t charge you for any transactions that you didn’t do yourself until they get to the bottom of the matter. Companies like MasterCard and Visa encourage users to use their credit cards by giving them no liability coverage for transactions that aren’t authorized.

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Paying down a debt

A lot of people fear using credit cards because they think it’s a way of getting into debt. However, you can strategically use your credit card to settle the debts you owe while also improving your credit. An example of how you can do that is through instances where you take advantage of balance transfer offers with an introductory of 0% APR. Many credit card networks don’t charge a lot for low interest or none at all for introductory periods. You can save a lot on interest charges if you pay debts with high interest during the promotion period.

However, it’s good to consider not making additional transactions if you pay a debt partially using your credit card until after you complete paying the remaining balance. You should also be aware of fees because some credit card companies charge balance transfer fees if you move your outstanding balance to a different credit card.

Credit cards offer universal acceptance

Using a debit card may limit you from making some purchases. A credit card makes it easier in many situations, such as booking a stay in a hotel room or even using a rental car. Most of these companies like charging credit cards because it can be easier for them to charge the clients if they cause various damages. For example, if you damage a rental car or break something in a hotel room.

Another benefit you’ll get from using a credit card is the merchant doesn’t know the amount you transact. A merchant will only be aware if you prepay for a rental or your stay at a hotel. Suppose the merchant doesn’t know the final amount. In that case, they’ll put a hold on a certain amount of the balance that’s available on your credit line in order to offer protection to themselves from charges you might incur. If you make such payments when using a credit card, hundreds of dollars in your account may be placed on hold by the company. Debit cards also aren’t always accepted by merchants when you’re going to foreign companies.

Bottom Line

Why would a business person accept credit cards? It’s good for a business person to let your customers use credit cards because they have many benefits. Cards are beneficial even to business people since they are more efficient in charging for damages a client may have caused. You can make a lot more sales when you allow your customers to make impulse buys even when they don’t have cash or enough money on their debit cards to make the payments. A lot of customers will also want to purchase items or get services from business people who accept the use of credit cards. This is because of the many conveniences they offer.

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